PUBLIC INVESTMENT

PublicInvest Research Sector Update Wednesday, June 3, 2020 KDNPP17686/03/2013(032117) TELECOMMUNICATIONS Neutral

RECOMMENDATION TABLE Allocation of 700MHz Spectrum

Malaysia’s Communications and Multimedia Minister Datuk Saifuddin Abdullah Current Target Upside Call has ordered the MCMC to assign the 700MHz spectrum to five (RM) (RM) (%) 3.86 3.70 -4.2 N telecommunication companies (telcos) namely Altel, Celcom, Digi, Maxis and DIGI 4.56 4.75 4.2 N Telekom. The list of winners was largely expected except Altel, which is a MAXIS 5.55 4.80 -13.5 U subsidiary of Puncak Semangat (a private company controlled by Tan Sri Syed TM 4.40 4.00 -9.1 N Mokhtar). Previously, it was reported that the 700MHz spectrum, along with

3.5GHz and 2628GHz, were identified as the pioneer bands for the implementation of 5G networks in . Generally, we believe the commercial rollout of 5G networks would take several years, given the need to improve the connectivity of current network as well as uncertainty over the adoption rate by consumers and businesses. At this juncture, it remains to be Dividend yield seen whether the previous consortium approach to help minimize cost and reduce duplications of infrastructure is still applicable as the pricing for this FY20F FY21F 700MHz spectrum was not disclosed. We maintain our Neutral rating on the sector. 4.0% § 3.5% Five telcos to be assigned 700MHz spectrum. Celcom, Digi and Maxis 3.0% will be allocated 2x10MHz each while Telekom and Altel will receive 2.5% 2x5MHz each. The ministerial order was dated 15 May and assignment 2.0% takes effect immediately though the Minister has the right to change, 1.5% modify or cancel the order. In January this year, MCMC issued a final 1.0% report mentioning that the 700MHz and 3.5GHz bands will not be allocated 0.5% to individual licensees. Instead, it will be assigned to a consortium in order 0.0% to lower investment cost and to avoid duplications of network DiGi Maxis TM Axiata infrastructure. As no pricing has been disclosed, it remains uncertain if the current administration is still adopting the same approach of not offering airwaves at excessive cost to carriers in order to reduce deployment cost and allowing consumers to benefit.

§ Challenges to 5G. One of the biggest challenges is investment cost with infrastructure (which includes spectrum, small cell towers) accounting for a big chunk of the deployment cost. Adoption rate is seen as another obstacle as 5G connectivity is only expected to apply to a small minority of industry players. All said, we remain doubtful on the demand for 5G, as the country would first be required to develop an ecosystem that involves advanced industries like artificial intelligence, driverless cars, Internet of

Things etc.

Eltricia Foong T: 603 2268 3000 F: 603 2268 3013 E: [email protected]

FINANCIAL SUMMMARY Company Price (RM) EPS (sen) EPS growth (%) PER (x) ROE (%) Dividend yield (%) @ 2 June 2020F 2021F 2020F 2021F 2020F 2021F 2020F 2021F 2020F 2021F DiGi 4.56 17.4 17.2 -5.3 -1.5 26.1 26.5 201.4 194.6 3.8 3.7 Maxis 5.55 20.2 20.7 5.2 2.7 27.5 26.7 21.7 21.7 3.2 3.3 Axiata 3.86 8.3 9.8 -21.2 17.8 46.4 39.4 5.9 4.7 2.1 2.3 TM 4.40 24.5 25.1 -9.0 2.6 18.0 17.5 12.9 12.4 2.2 2.3 Source: PublicInvest Research estimates

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